Exploration of the paths for structural adjustment, transformation, and upgrading of China’s refining industry under low oil prices

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Main contents:
I. Achievements of China’s refining industry during the 12th Five-Year Plan period
II. The impact of low oil prices on China’s refining industry
III. Strategies for restructuring and upgrading China’s refining industry structure

I. Achievements of China’s refining industry during the 12th Five-Year Plan period
China’s refining capacity has grown rapidly, enabling the country to become one of the world’s major refining nations, ranking second globally. By the end of 2015, China’s refining capacity was approximately 745 million tons per year. In 2005 and 2010, this capacity was 350 million tons per year and 520 million tons per year respectively. The average annual growth rates during the periods 2005–2010 and 2010–2015 were 8.4% and 7.5% respectively, indicating a continuous trend of rapid development. Between 2005 and 2015, China’s refining capacity doubled, placing it second in the world as the largest refiner after the United States. Referencing the annual global refining capacity statistics published by American oil and gas magazines, in 2015 China’s refining capacity accounted for 15.5% of the global total, an increase of 7.5 percentage points compared to 2005. Consumption trends for gasoline, kerosene, and diesel vary: demand for gasoline and kerosene is strong, while diesel consumption remains stable; the ratio of diesel to gasoline has declined rapidly. In 2015, gasoline consumption was 115.31 million tons, kerosene consumption was 27.7 million tons, and diesel consumption was 173.34 million tons. Since 2010, gasoline consumption has maintained a steady and rapid growth trend, kerosene consumption has accelerated and shown significant growth, while diesel consumption has slowed down. The ratio of diesel to gasoline consumption dropped from 2.18 in 2010 to 1.50. http://mmbiz.qpic.cn/mmbiz/BOia8ye2E2miaIgKiaolVg3mo05cYrJrEz85QS4eVgHdHq2wibdtag1jna3T0XULkfjXWNFAmpaRd6AxdXsuF5Jybg/0?wx_fmt=png The scale of oil refining operations has increased significantly; refineries with a processing capacity of tens of millions of tons account for over 40% of the total. The level of integration has also improved, as a number of large-scale oil refining projects have been built and key enterprises have been upgraded, leading to further increases in the scale of refining facilities in China. To date, 24 refineries with a capacity of 10 million tons each have been built across the country, resulting in an overall production capacity of 320 million tons per year, which accounts for 42.9% of the national total. Fifteen of these refining complexes are equipped with ethylene plants, indicating a relatively high level of integration between refining and chemical processing. http://mmbiz.qpic.cn/mmbiz/BOia8ye2E2miaIgKiaolVg3mo05cYrJrEz8VWOUEBIiaB2btsHLDgpHHOWoiaribwVMK5tknxJrdJpdA36tGPtrcqQKg/0?wx_fmt=png The scale of these key oil refining enterprises is at the world average level, with some local refineries experiencing rapid growth. In China, the oil refining enterprises with a capacity of 10 million tons each are mainly under the control of China National Petroleum Corporation and Sinopec; Sinopec has 14 such enterprises, while CNPC has 8. In addition, enterprises such as CNOOC Huizhou and Sinochem Quanzhou have a refining capacity of 12 million tons per year. Enterprises like China Chemical Changyi Petrochemical, Yanchang Group’s Yanchang Refinery, Dongming Petrochemical, Ningxia Baota, and Panjin Beiran also have a refining capacity of 7–8 million tons per year, with many local refineries having a capacity of over 5 million tons per year. The average refining capacity of Sinopec is around 8 million tons per year, while that of CNPC is about 7 million tons per year. The major domestic refineries have a scale that is roughly on par with the world average, granting them a certain level of operational capacity. However, with 200 refineries existing across the country, each having an average capacity of around 3.7 million tons per year – which is only 50% of the average capacity of refineries worldwide – it is still necessary to increase the scale of these refining operations. http://mmbiz.qpic.cn/mmbiz/BOia8ye2E2miaIgKiaolVg3mo05cYrJrEz8zTFK6EeUnwnln4ibO9lb1a7z0rrzbFSlbGWdbvRurOvTgKDGSvkUhnQ/0?wx_fmt=png http://mmbiz.qpic.cn/mmbiz/BOia8ye2E2miaIgKiaolVg3mo05cYrJrEz8IXFSeRnBPTh7RPaKZq3HCrx6ibiaK2z4rYuIyibicFhBOQhulzMW7XTwpQ/0?wx_fmt=png In May 2015, seven ministries and commissions jointly issued the “Work Plan for Accelerating the Upgrading of Petroleum Product Quality” (Document No. 974 issued by the National Development and Reform Commission regarding energy). Starting from January 1, 2016, this plan was implemented in 11 provinces and municipalities in the eastern region ； Starting from January 1, 2017, gasoline for vehicles that meets National Standard V (including E10 ethanol-blended gasoline) and diesel for vehicles that meets this standard (including B5 biodiesel) will be available nationwide, while the sale of gasoline and diesel that fall short of National Standard V will be discontinued in the country. Additionally, in the second half of 2016, Beijing will introduce the Jing VI gasoline standard, reducing the olefin content further to 15‰. In 2019, China will introduce National VI standards. Refining companies have developed rapidly, with an increasing diversity of participants. Sinopec and CNPC remain the key players in China’s refining industry. At the same time, large state-owned enterprises such as CNOOC, Sinochem, Yanchang Group, North Industries Group Corporation, and Sinochem Group have reached a certain scale, while more than a dozen local refineries including Dongming Petrochemical, Ningxia Baota, and Panjin Beiran have also grown to a significant size. As a result, the refining industry is showing a trend of diversified development. http://mmbiz.qpic.cn/mmbiz/BOia8ye2E2miaIgKiaolVg3mo05cYrJrEz82mH1FiarY8Ouoez160CCCFicibXfbKwIBk0QRYq76w6HAfTKwOS1JVWkQ/0?wx_fmt=png Gradually liberalize the import and processing of crude oil to break the monopoly situation and stimulate competitive vitality. **On February 16, 2015, the National Development and Reform Commission issued the “Notice on Issues Concerning the Management of the Use of Imported Crude Oil”. Since May 2015, the China Petroleum and Chemical Industry Federation has been organizing verification and assessment efforts for enterprises applying to import oil. As of February 2016, 14 local refineries had passed the audits, with a total processing capacity of 79.4 million tons per year; they were also granted permission to use 58.19 million tons of imported crude oil. Apart from the refiners that have already been approved, it is estimated that over ten more companies meet the application criteria. These companies have a combined production capacity of approximately 50 million tons per year. If all of them are approved, they could potentially be allocated a crude oil quota of 35 million tons. It is expected that local refineries across the country will be allocated over 80 million tons of crude oil. This will effectively resolve the long-standing problem of underutilization and inefficient operation of their refining facilities. As a result, the operating rates of local refineries will significantly increase, and their production capacities will be fully utilized. An increasing number of companies have been granted the right to import crude oil, which will further intensify competition in the retail market. Local refineries that have obtained approval to use imported crude oil are listed here: http://mmbiz.qpic.cn/mmbiz/BOia8ye2E2miaIgKiaolVg3mo05cYrJrEz89QwU5NtrarKicLO06o0xFMtAibiar076z8yUOZYCcCkNbyxfomdDe1ZQA/0?wx_fmt=png As of March 2016, 11 local refineries had been granted such rights. With the relaxation of restrictions on crude oil imports and refined oil exports, as well as the delegation of approval powers to refineries, more market players have entered the refining and sales sectors, leading to increased competition. The pricing mechanism in the refined oil market is gradually being improved, with market-oriented reforms advancing step by step. http://mmbiz.qpic.cn/mmbiz/BOia8ye2E2miaIgKiaolVg3mo05cYrJrEz8oufpb6xtPYsU8ObOYz2ZXson49WyLCkia5uMCQsm0ibWpE8Nia7kNiamvg/0?wx_fmt=png II. The impact of low oil prices on China’s refining industry. Trend of international oil prices in recent years: The average price of WTI crude oil futures was 48.76 dollars per barrel, a significant drop of 44.15 dollars per barrel compared to 2014, representing a decline of 47.5%; these figures represent the lowest average prices since 2004. In 2016, global economic growth continued to face numerous challenges, with growth rates likely to be lower than expected. Given that there were no significant changes in macroeconomic factors such as the divergent monetary policies of major economies, the ongoing process of deleveraging, and the persistent risk of deflation, commodity prices including oil remained under pressure. Three key factors influencing international oil price trends: The overall macroeconomic trend, which affects price expectations; the energy structure and the supply-demand balance of crude oil, which determine the price benchmark. From the perspective of the oil market, it may take longer for the world oil market to reach a new equilibrium, with balance likely to be achieved in the second half or fourth quarter of 2016. The oversupplied market conditions kept international oil prices at low levels in the first half of 2016. It is expected that the average price of Brent crude oil for the whole year will be $40–$45 per barrel, while the average price of WTI crude oil will be $38–$43 per barrel. Unexpected events such as regional tensions can trigger short-term price fluctuations. In the medium to long term, it is difficult for prices to return to historical highs. Recently, oil price trends have been influenced by numerous uncertain factors; however, considering factors such as overall demand and crude oil extraction costs, excessively low oil prices are unsustainable. In the long term, oil prices will continue to rise along with the trend of stable growth in the world economy. It is predicted that by the end of 2016 to 2017, the world oil market will reach a new balance, and oil prices will rise further on the basis of a basic supply-demand equilibrium. Forecasts indicate that oil prices will rise further after the global oil market rebalances at the end of 2016 or in 2017. Low oil prices have led to a significant decline in the performance of international oil companies; integrated companies, however, enjoy a clear advantage. The sharp drop in international oil prices has severely impacted the performance of all types of oil companies. The revenue and net profits of the five major international oil companies – ExxonMobil, Shell, BP, Chevron, and Total – as well as the six national oil companies – Rosneft, Gazprom, Statoil, Petrobras, Petronas, and Pemex – declined by around 40% and 70%, respectively. However, low oil prices also contributed to an increase in demand. At the same time, the decline in prices of downstream products was modest, resulting in good profits for the refining industry, with average refining gross margins remaining at a high level. http://mmbiz.qpic.cn/mmbiz/BOia8ye2E2miaIgKiaolVg3mo05cYrJrEz8onTlGTyBXD6RMQQeWpFoPFvEjJiaicyT6qVuVicHvIp3XZdRQVdhQoxHQ/0?wx_fmt=png Low oil prices posed a severe challenge to domestic oil and petrochemical companies. The sharp drop in international oil prices in June 2014 led to heavy losses for domestic refineries. In 2015, CNPC, Sinopec, and CNOOC took various measures to ensure the stable operation of production, resulting in a slight increase in production figures. From January to September, the combined crude oil production of the three companies increased by 5.5%, while their combined natural gas production rose by 3.4%; both crude oil processing volume and the sales volume of refined products saw slight increases ； Affected by factors such as a sharp drop in international oil prices and a slowdown in the growth of domestic oil and gas market demand, the operating performance of the three companies declined significantly. From January to September, the sales revenues of Sinopec, CNPC, and CNOOC declined by 25.62%, 27.36%, and 33.43% respectively on a year-on-year basis. The net profits of CNPC and Sinopec dropped by 68.14% and 47.82% respectively, while CNOOC’s net profit for the first half of the year fell by 56.14% on a year-on-year basis. The decline in the operating performance of the three major domestic companies is roughly on par with that of international oil giants. In 2015, China’s refining industry recovered from a low point and achieved good results. That year, the profitability of the refining industry improved significantly, costs continued to decline, and its ability to generate profits kept rising. The operating income margin for refiners throughout the year was 2.60%, up by 3.59 percentage points from the first quarter ； The gross margin was 21.91%, up by 2.40 points. Industry profitability continues to recover. Based on the future trends in international oil prices, adjustments to domestic refined oil prices, and growth in market consumption, it is estimated that in 2016 the profitability of the refining industry will continue to improve, with an increase in total profits estimated to be over 10% ； Core revenue increased by around 3%. http://mmbiz.qpic.cn/mmbiz/BOia8ye2E2miaIgKiaolVg3mo05cYrJrEz8GzkydhxfqLYGCoTVxXxXOOR6QJXDK11POt3yhwf2tkSV3x9W19KVgA/0?wx_fmt=png Integrated petrochemical companies enjoy stable performance and increased profits; in 2015, companies such as Shanghai Petrochemical, Zhenhai Refining & Chemical, and Huizhou Refining & Chemical achieved good operational results. According to its 2015 annual report, Shanghai Petrochemical processed a total of 14.7953 million tons of crude oil throughout the year (including 2.0101 million tons under toll processing). This represents an increase of 625,100 tons, or 4.41%, compared to the previous year. In 2015, Shanghai Petrochemical turned a loss into a profit, with operating profits amounting to 3.9089 billion yuan – an increase of 4.4968 billion yuan compared to the previous year’s operating loss of 587.9 million yuan. In addition, operating revenue amounted to 80.803 billion yuan, a year-on-year decrease of 20.92%. III. Strategic approaches to the structural adjustment and transformation of China’s refining industry Domestic demand for refined oil products and forecasts: Gasoline Consumption of gasoline is closely linked to the number of passenger vehicles in use, while its correlation with economic trends is relatively low. As China’s automobile market continues to grow steadily, gasoline consumption maintains a strong upward trend. Over the past three years, the annual growth rate of passenger vehicle sales has exceeded 10%, while gasoline consumption has shown strong resilience, with an annual growth rate of 9.9%. In 2015, gasoline consumption was 115.31 million tons, representing a year-on-year increase of around 9.2%. The ownership of passenger vehicles follows an S-shaped development pattern of ‘slow – rapid – slow’. The number of passenger vehicles in use increased by 15% on average annually from 2010 to 2020, by 5% on average annually from 2020 to 2030, and will gradually reach saturation by 2040. Before 2020, it was mainly gas-powered vehicles that replaced gasoline vehicles, while after 2020, the replacement by electric vehicles accelerated. http://mmbiz.qpic.cn/mmbiz/BOia8ye2E2miaIgKiaolVg3mo05cYrJrEz824RUmJ7PMATrJwAaRWfyu3UrhmWhp47TpJQK82Mq3Opc7Pst0LKLcg/0?wx_fmt=png Domestic demand for refined oil products and forecasts: Kerosene and jet fuel are primarily used in air transportation; their consumption is closely tied to the volume of air cargo and passenger traffic. The rapid growth in such traffic contributes to an increase in jet fuel sales. In recent years, the average growth rate of air cargo volume has been approximately 10%. Consumption of aviation kerosene has also increased year-on-year, with an average annual growth rate of 11.5%. In 2015, kerosene consumption increased by 17.3% on a year-on-year basis, reaching 27.7 million tons. Analysis and forecast of refined oil demand: Diesel. Diesel is primarily used in commercial vehicles, industry, construction, commerce, power generation, railways, and other sectors. Affected by the slowdown in the growth rate of the industrial economy, sales of commercial vehicles have grown slowly, travel rates have declined, and fuel consumption for road logistics has decreased on a year-on-year basis – all of which are important factors contributing to the low level of diesel consumption. In addition, the use of oil in industry and for railways decreased, while its use in agriculture and water management saw a steady, slight increase; the growth rate of oil use in construction slowed down. The increasing consumption of alternative fuels such as natural gas is also a significant factor contributing to the slowdown in diesel consumption growth. The average annual growth rate of diesel consumption over the past three years has been around 0.7%. In 2015, diesel consumption was 173.34 million tons, representing a year-on-year increase of about 0.3%. Domestic demand for refined oil products and forecasts: Based on a comprehensive analysis of the development prospects of the national economy and related industries, it is estimated that the annual growth rate for demand for gasoline, coal, diesel, lubricants, and bitumen will be 3.0% from 2015 to 2020. In 2015, the demand for gasoline, coal, diesel, and lubricants will reach 356 million tons, while the processing volume of crude oil will be around 527 million tons ； Demand is expected to reach 425 million tons in 2020, with crude oil processing volume at 606 million tons. According to analyses of the development of related industries, the consumption structure of refined petroleum products will continue to change: gasoline and kerosene will maintain strong growth rates, while diesel consumption will slow down or even decline, resulting in a further reduction in the ratio of diesel to gasoline consumption. http://mmbiz.qpic.cn/mmbiz/BOia8ye2E2miaIgKiaolVg3mo05cYrJrEz8zaibkIQmAV4yqsKuGcjnfh0m8VGHtS7wyVQ8w3Yf9kZ2ORraZIWqK0w/0?wx_fmt=png Several characteristics of China’s refining industry at the current stage: In terms of scale, China’s refining industry is among the best in the world; the standards of China’s advanced refineries are close to or even equal to those of the world’s most advanced refineries. However, the average scale of these refineries remains far below the world average. From an innovation perspective, our country possesses refining technologies capable of handling tens of millions of tons per year, as well as the capability for technological innovation and engineering implementation. From a layout perspective, China is in a supply and demand situation similar to that of the United States in the mid-1970s, when supply and demand reached balance, with its overall layout essentially in place. From a resource perspective, our country is facing the same resource shortages that Europe, as well as Japan and South Korea, have encountered since the 1980s; resource risks are on the rise, along with significant fluctuations in crude oil prices and an increasing dependence on crude oil imports. In terms of quality, the standards for domestic oil products have been rapidly improving and are now approaching world-advanced **levels. Numerous contradictions and problems faced in the development of China’s oil refining industry:
Energy supply security issues: The degree of dependence on imported crude oil is rising year by year, and crude oil prices are experiencing significant fluctuations.
Problem of overcapacity: Although the spatial layout of refineries continues to improve, there remains a pronounced problem of local overcapacity.
Imbalance between supply and demand: The diesel-to-gasoline ratio has declined substantially, necessitating major adjustments to the structure of refining facilities.
Shortage of advanced production capacity: There is a contradiction between the trend toward lower-quality imported crude oil and the rapidly improving quality standards for domestic petroleum products.
Insufficient profitability: Increased investments in energy conservation, environmental protection, and quality improvement have driven up production costs, resulting in inadequate profitability levels.
Regulation of alternative energy sources: Alternative energy sources for vehicles are developing rapidly; however, their unregulated use is gradually having an impact on the oil refining industry.
Goals and principles for industrial restructuring and transformation: Achieving three key transitions—shifting from expansion in scale and quantity to intensive and efficient development ； Transition from basic energy-based to energy-chemical-based model ； Transitioning from extensive production to refined management. Adhere to the six-oriented development: large-scale, intensive, base-based, integrated, clean, and high-end development. Enhance the positioning of the refining industry, fully leverage its fundamental role in the energy structure, and further strengthen its core position within the petrochemical industry. Continuously improve the efficiency of refining operations and its international competitiveness, so as to make the country a leading force in global refining. Strengthen top-level planning to ensure a secure and stable supply of crude oil resources. China’s oil consumption is increasing year by year. In 2015, China’s domestic crude oil production was 550 million tons, while crude oil imports amounted to 320 million tons, resulting in an external dependence rate of 60.8%. It is estimated that crude oil demand will reach 610 million tons in 2020 and 660 million tons in 2025; the shortfall at that time will be between 400 million tons and 450 million tons, with the degree of external dependence reaching 65% to 68%. From the perspective of ensuring the security of crude oil supply, it is necessary to set limits on energy consumption, particularly on the consumption of imported crude oil, and to establish a threshold such that the dependence on foreign oil does not exceed 70%, in order to avoid risks to industrial security resulting from excessive reliance on imported crude oil. Strengthen top-level planning to ensure the safe and stable supply of crude oil resources. Boost domestic exploration and development of oil and gas to enhance supply capacity and security. Enhance energy diplomacy to establish a diversified oil supply system. Improve the diversified oil reserve system to boost risk mitigation capabilities. Promote diversification of raw materials used by refining companies in order to reduce raw material costs. Advance an energy diversification strategy to fundamentally alleviate the pressure caused by shortages of domestic crude oil. Build a system for sustainable, stable, and low-cost crude oil supply and security to foster the sustainable development of the refining industry. Take environmental carrying capacity into full consideration when continuing to adjust and optimize the layout of refining facilities. During the 12th Five-Year Plan period, refining capacity along rivers and in the southwestern economic zones was strengthened, further optimizing the national refining layout. Building on the original “three circles and two belts” structure, a new “three circles and three belts” pattern for the refining industry emerged, characterized by three major refining and chemical enterprise clusters in the Bohai Rim, Yangtze River Delta, and Pearl River Delta regions, as well as refining and chemical industry zones in the Northeast, Northwest, and riverine areas. Fully considering environmental carrying capacity, continue to adjust and optimize the layout of the refining industry. The layout of this industry must take environmental carrying capacity into full account. Coastal areas have advantages such as lower costs for processing imported resources, great market potential, and better environmental carrying capacity. On the premise of giving equal emphasis to environmental protection and management, development should be carried out in a moderate manner in some inland areas. It is necessary to fully consider market demands and the limits of environmental capacity, make scientific decisions, and proceed cautiously with development in areas where there is an excess of oil products and limited environmental carrying capacity; such development should be restricted. Efforts should be made to promote an integrated industrial layout and establish world-class petrochemical bases. The industrial concentration in China’s “three circles and three belts” areas should be further increased, with dispersed refining enterprises gradually being relocated to centralized petrochemical industrial bases. This will result in the creation of several world-class petrochemical parks capable of handling 40–50 million tons of refined oil products, 4–5 million tons of olefins and aromatics, along with related downstream industries. Several petrochemical bases should also be established in eligible areas in the central and western regions. Accelerate the optimization of the product structure; flexibly adapt to future changes in China’s demand for refined oil products and the downward trend in the diesel-to-gasoline ratio. Appropriately regulate the development pace of China’s refining industry, control capacity growth, and adjust the diesel-to-gasoline production ratio. The facilities should be located near consumer markets to avoid long-distance transportation of petroleum products, even back-and-forth shipments. Investment in the construction of pipelines for refined oil products should be increased to reduce the burden on land and water transportation, thereby lowering transportation costs. Faced with the expectation of a shrinking export market for refined oil products in the Asia-Pacific region, it is difficult for China’s refining industry to adopt a development model characterized by large-scale imports and exports. Yet, under the pressure of further expansion of domestic refining capacity, it is still necessary to vigorously explore foreign markets, especially by taking advantage of the current Belt and Road Initiative to go global and pursue internationalization. Promote technological innovation and adjustment of the product structure for differentiated development. It is necessary to innovate the development model for deep processing in the oil refining industry, and support the development of integrated enterprises engaged in oil refining-aromatics, oil refining-olefins, and oil refining-lubricants – thereby increasing the proportion of clean refined petroleum products, high-end chemical products, and premium lubricants. Raise the safety and environmental standards in China’s refining industry, and tighten the entry requirements for this sector. Adhere to a trend toward larger-scale refineries, and resolutely phase out outdated production capacity. Implement the requirement to eliminate refineries with a capacity of 2 million tons per year or less. Accelerate quality improvements to make products more environmentally friendly. Ensure that the goals related to improving the quality of refined oil are met on schedule, so that the supply of National V standard fuel can be ensured by 2017. Ensure the prompt formulation and timely implementation of National VI standards. Enterprises should adjust the structure of their facilities to achieve cleaner production, strengthen control at the source, and meet the requirements of green manufacturing processes. The Ministry of Environmental Protection has issued the \"Emission Standards for Pollutants in the Petroleum Refining Industry\" (GB31570-2015) to enhance process management, promote green and low-carbon development, ensure that emissions are harmless, improve energy efficiency, and strengthen inspections and management in order to advance energy conservation and emission reduction in the refining industry. By 2017, the comprehensive energy consumption per ton of crude oil processed was reduced to 83 kg of standard coal per ton (equivalent to 58 kg of standard oil per ton), a 9.8% decrease compared to 2012. Accelerate the development of clean production technologies; encourage the development of diversified resource utilization and integrated oil-coal conversion technologies, so as to achieve coupled development and efficient utilization of energy and resources. Speed up the development of technologies for the efficient utilization of heavy oil resources. Focusing on the efficient conversion of heavy oil resources, first, develop catalytic cracking processes that allow for a high proportion of residue utilization while minimizing emissions, thereby partially replacing coking capabilities ； Second, rely on existing or newly built coal-to-hydrogen plants to obtain low-cost hydrogen resources ； Third is the adjustment of the heavy oil processing structure, focused on the introduction of fluidized bed and slurry bed residue hydrogenation technologies, in order to promote the development of independent fluidized bed residue hydrogenation technologies. Develop and apply catalytic diesel conversion technologies to reduce the diesel-gasoline ratio. Continuously improve the efficiency of these technologies, decrease energy and hydrogen consumption, and convert catalytic diesel components into gasoline components and light aromatics. Develop technologies for the comprehensive utilization of by-products to enhance the value of resources, and advance utilization technologies for light hydrocarbon resources such as ionic acid alkylation, solid acid alkylation, butane dehydrogenation, and isomerization, in order to produce clean petroleum products and downstream chemicals. Promoting the practice and application of the “molecular refining” concept means understanding petroleum processing processes at the molecular level, accurately predicting the properties of products, optimizing processes and procedures, achieving molecular-level utilization, enhancing the value of each molecule, and producing high-value-added products. Deepen reforms in the refining industry, strengthen and improve industry regulation, and promote orderly market competition. Further reform the administrative approval system for the refining sector; strengthen and improve planning and guidance related to industry regulation, while streamlining approval procedures. “Energy Development Strategic Action Plan (2014–2020)”, November 2014; “Plan for the Layout of the Petrochemical Industry”, Document No. 2208 issued by the National Development and Reform Commission, September 2014. Accelerate the marketization process of refined oil products and foster the development of a mixed-ownership economy... Environmental policies and standards serve as constraints on industry development. Under certain conditions, allow crude oil processing enterprises to import and utilize crude oil. Deeply advance reforms of the pricing mechanism for refined oil products to promote orderly market competition; gradually align this mechanism with international standards. Further refine the pricing mechanism for refined oil products and adjust the consumption tax levied on them. When appropriate, liberalize refined oil prices. Utilize differentiated fiscal and tax policies to encourage improvements in oil product quality. Address the drawbacks of monopolistic operational systems; regulate and guide the development of independent refineries. Strengthen fiscal and tax management to enable market mechanisms to play their role in resource allocation. Further improve fiscal and tax policies pertaining to the refining industry and implement reforms related to consumption taxes. Currently, consumption tax on refined oil products is levied on a per-unit basis at the production stage, which results in double taxation; this hampers the healthy development of the refining industry, and the tax burden cannot be fully passed on to consumers. It is recommended to shift the consumption tax on refined oil from being levied at the production stage to the consumption stage. It is recommended that the consumption tax system be changed to one in which the revenue is shared between the central and local governments. Consumption tax rates should be adjusted reasonably based on market conditions, with differentiated rates for gasoline and diesel. Reforms within the refining industry should be deepened, and the development of enterprises with diverse ownership structures should be promoted. Further efforts should be made to consolidate and restructure large enterprises, so as to enhance the competitiveness of local enterprises and address overcapacity issues, thereby creating enterprise groups with competitive advantages. The integration of the Internet with the refining industry should also be promoted, along with the development of industry alliances. Support should be provided for these alliances, and through industrial cooperation and industry self-regulation, the overall level and governance capabilities of the industry can be improved, thereby unleashing the potential of diverse ownership structures. http://mmbiz.qpic.cn/mmbiz/BOia8ye2E2miaIgKiaolVg3mo05cYrJrEz8OxCIav1MxZtupQZUCg57PXVbq6tqu9xNsZEgyOfRA1s35Arw4IG55Q/0?wx_fmt=png Reforms within the refining industry should be deepened, and the strengths of mixed-ownership economies should be utilized. Cooperation should be intensified, with joint ventures established to promote optimal regional development. Large state-owned enterprises should separate certain operations related to downstream chemical manufacturing or specific production processes, thereby creating a group of specialized enterprises centered around these state-owned refining companies. This will help to form integrated industrial chains and foster common development in the downstream markets. By introducing a diversified equity structure and unleashing the vitality of diverse forms of ownership, it is possible to gradually guide the state-owned economy out of areas involving general competition, allow the non-state-owned economy to exert its competitive advantages, and thus boost local economic development. By leveraging local symbiotic markets, it is possible to recreate competitive advantages in terms of location and enhance a company’s own competitiveness. As key players in regional economic development, such companies need to further change their mindset, shifting from simply selling products in the market to expanding their industrial chains, thereby achieving an upgrade and transformation of their value chains. Compiled by the Petroleum and Chemical Industry Planning Institute for the 2016 National Exchange Conference on Advanced Technologies in the Refining and Chemical Industry